Analysts have high hopes for St. Jude in 2014
After months of regulatory woes and sluggish sales, St. Jude Medical ($STJ) has spent the past year cutting costs, trimming payroll and digging deep for some high-profile M&A. Now, after stringing together a few positive quarters, the company has won over many analysts and investors, setting the table for a big 2014.
The optimism for St. Jude stems not just from its more efficient business model but from its timely dealmaking, and Morgan Stanley analyst David Lewis said in a note to investors that he believes the Minnesota devicemaker has amassed a promising pipeline that can deliver a profit boost down the line.
Last year, the company paid $311 million for Endosense to get a stake in the booming electrophysiology market and $123.5 million for Nanostim and its leadless pacemaker, but it's St. Jude's acquisition rights for CardioMEMS that present the most upside, Lewis said. St. Jude is poised to buy the company if and when its Champion diagnostic device wins FDA approval, and, with a positive panel vote already in the bag, Lewis figures that's a likely scenario.
But St. Jude's turnaround is also a credit to some of its in-house work. Just a year ago, the company faced mounting scrutiny over the safety of its Durata ICD leads, with a few analysts predicting the devices would suffer the same fate as their forebears and end up at the center of a costly recall. Instead, St. Jude stuck to its guns and demonstrated their durability, RBC Capital Markets analyst Brandon Henry said in a note to investors, and he believes the company is poised to hold onto its market share in cardiac devices while expanding into new territories.
Thanks to all that renewed hope, St. Jude's shares have risen to an all-time-high $65 this month, about 75% above their value at the start of 2013. Last quarter, St. Jude delighted investors with an estimate-beating 40% jump in net income, compensating for revenue growth of just 1% with better margins. Now, with a great deal of momentum and some near-term regulatory hurdles to clear, St. Jude has its work cut out for it in the new year.
Summary
After months of regulatory woes and sluggish sales, St. Jude Medical has spent the past year cutting costs, trimming payroll and digging deep for some high-profile M&A. Now, after stringing together a few positive quarters, the company has won over many analysts and investors, setting the table for a big 2014.